KBRA Releases Research – 2024 ABS Sector Outlook: Pushing Past the Headwinds

KBRA releases its 2024 ABS Sector Outlook, examining key trends from 2023 and providing forecasts for the new year.

The ABS sector has faced a challenging market environment over the past year, with rising yields, wider spreads, and softer credit fundamentals across most asset types. However, recent economic data shows moderating inflation and slowing job growth in the labor market, which suggests the Federal Reserve’s restrictive monetary policy is working. Although plenty of downside risks will remain throughout next year, we believe it is likely that new issue volumes will climb, spreads will tighten, and credit fundamentals will weaken marginally across the majority of the ABS market.

Some key takeaways from the report include the following:

• With $233 billion priced through October 31, we expect full-year (FY) 2023 supply to land somewhere around $260 billion, down 2.3% versus 2022 levels and 14.4% below the record high of $304.2 billion set in 2021. Looking ahead, our base case forecast is for $275 billion of ABS new issuance in 2024, up 5.6% versus our expected FY 2023 volume levels.
• Given the prevailing economic landscape, we expect consumer ABS fundamentals to generally weaken next year, with the degree of weakening largely contingent on the strength of the labor market. Consumer loan performance should weaken marginally with a tight labor market but will likely come under increasing pressure if the unemployment rate moves higher.
• KBRA’s ABS ratings have been predominantly stable in 2023, with 2,026 affirmations, 598 upgrades, and 53 downgrades. Most upgrades were effectuated in the auto loan/lease and consumer loan ABS sectors due to increased credit support from transaction de-leveraging, while most negative rating migration occurred in: (1) the auto loan/lease ABS sector, largely owing to the bankruptcy of U.S. Auto Sales Inc.; and (2) the aviation ABS sector, largely due to ongoing performance concerns relating to the Russia-Ukraine conflict.

Click here to view the report.

About KBRA

KBRA is a full-service credit rating agency registered in the U.S., the EU and the UK, and is designated to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.

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